Questions tagged [quant-trading-strategies]

Quantitative trading strategies use quantitative signals and a set of predefined systematic rules to make trading decisions. Strategies operate within parameters based on historical analysis (backtesting) and real world market studies (forward testing). Strategies may be executed manually (by a human trader) or automatically (by a computer).

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195 views

Is there a relationship between Risk Neutral Pricing framework and Nash Equilibria?

Based on the Fundamental Theorem of Asset Pricing, the risk neutral price of a contingent claim on an asset in a liquid, arbitrage free market can be determined by switching to an equivalent $Q-$ ...
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505 views

Questions on Kelly criterion

I am new to asset allocation problems and have some concerns regarding the derivation of the continuous-time Kelly criterion (i.e. not the original version destined to discrete sports betting/Casino). ...
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157 views

The “Universal Model” by Justin Sirignano and Rama Cont

In the nicely written article https://arxiv.org/abs/1803.06917 by Justin Sirignano and Rama Cont, they explained that their model is universal and stationary. I am a bit confused about some questions. ...
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1k views

Meaning of cross sectional rank

This paper mentions the concept of rank which is defined as cross sectional rank. For e.g. one of the alphas (#3) is (-1 * correlation(rank(open), rank(volume), 10)) 10 is just the number of days ...
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339 views

Calculating index arbitrage

I have a days-worth of level 2 market data. I am calculating S&P500 index arbitrage. I have a few questions about the calculation: 1) Should I be summing all the bids and asks from the stocks ...
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86 views

Backtesting: what happens to real-executed order if mine fills instead?

I'm writing a backtester and using an order-by-order Nasdaq ITCH feed whilst testing it. Let's say the bid-ask spread is 100 @ 9-11 @ 100 My strategy inserts an bid order for 100 @ 10 and this ...
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584 views

Rationale behind volatility dispersion (or correlation) trading

When looking at the explanation of CBOE S&P 500 Implied Correlation Indices available here, it is written that such indices: [...] "may be used to provide trading signals for a strategy known as ...
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387 views

Can a stat arb alpha be a global macro alpha?

In academic literature, "statistical arbitrage" is opposed to (deterministic) arbitrage.[1] In deterministic arbitrage, a sure profit can be obtained from being long some securities and short others. ...
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120 views

reconstruct LOB from NASDAQ ITCH -how to handle market price order

I am trying to reconstruct the limit order book from the NASDAQ Historical TotalView -ITCH data. After I decode the raw data, I can successfully generate whole messages flow from ITCH data. However,in ...
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208 views

Assets cointegration: optimal inventory for futures market

I'm interested in HFT cointegration stratagies, and recently found interesting article "Algorithmic Trading of Co-Integrated Assets" The article describes mean-reversion strategy for N-assets. ...
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116 views

How does one simulate intraday strategies which don't end up flat at the close?

I ran into this trying to simulate trading interlisted names between the NYSE and the TSX. Depending on my strategy parametrization it would sometimes end up with a significant short or long dollar ...
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88 views

How to trade risk-adjusted returns?

Why does dividing daily returns by daily range eliminates fat tails and results in an (almost) gaussian distribution? And how could that distribution be exploited to enter trades?
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96 views

how to avoid building a strategy that depends on very long trends

When I construct a strategy, it is easy to make subtle dependencies on trends that have existed for a long time. Sometimes it is legit to explicitly take advantage of the trends. For example, it has ...
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84 views

Yield Curve Trading Strategy Explaining Books

Recently I really enjoyed being here while getting great recommendations. Would like to thank you all. Could you please recommend some books/papers on trading strategies, lets say yield curve ...
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152 views

How to calculate “Differential Sharpe ratio”?

Instead of using the "sliding the time window" method of calculating the sharpe ratio under online framework, they've defined "differential sharpe ratio" as such But under equation 5, you can ...
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146 views

Arbitrage from ATM option trading?

So I was testing out a collar options strategy (long put, short call, and long shares of the underlying stock) in a backtest for a school finance project, and the profits & losses are given by the ...
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123 views

Exotic derivatives - Replication

I would like to replicate the payoff Max(0, Min(S1, K) - S2) with a combination of the following derivatives: -> option on S1, strike of our choice -> option on (S1-S2), strike of our choice -> A ...
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46 views

Dealing with missing factors

I have to deal with a factor investing strategy, with the particularity that I can't get a value for the factor for each date for each stock. Practically speaking, this is due to the fact that this ...
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355 views

Approximating Market Making PnL with a Trend Following Strategy

In an interview about the setting up AHL Michael Adams made the following quote (the quote relates to their pre AHL days when they acted as consultants): I think because we we re doing work for ...
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119 views

Need some suggestion about short vxx long vx future strategy

I read a post by M. Avellaneda trading volatility At page 59-62 there's Strategies with VIX futures to hedge short VXX I'd like to reproduce the result. I am not sure how to do it. Some key points ...
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60 views

Reduced rank / matrix factorisation techniques and their uses in portfolio optimisation?

I am interested in reduced rank / matrix factorisation techniques and their uses across finance and portfolio optimisation. For example, PCA might be used to reduce the number of components you are ...
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331 views

Trading strategies for increased realized volatility

Suppose once every 2-3 weeks I have a way to select a few equities that are likely to exhibit higher realized volatility in the future month (relative to the past month). Historically, the average ...
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80 views

Trading rules from automated search

I after talking to a research fellow, researched about trading rules from automated search. I found in the book Finding Alphas by Tulchinsky a general chapter, ...
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354 views

cointegration strategy

If it can be proved that two time series $$S_t^1=\alpha + \beta S_t^2 + \xi_t$$ representing stocks are correlated, with $\beta=-2$ and then are proved to be cointegrated, how a portfolio should be ...
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63 views

Literature to Learn about Different Instruments

What is a good source of literature to learn about the specifics of various instruments that are traded? For example, suppose I wanted to know more about MBS's, i.e. how exactly they are securitized, ...
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1k views

How to calculate returns of backtested strategy?

Lets say I have some strategy (long/short) backtested for certain period. Strategy has entries/exits only at the end of the day and may have overnight positions hold. Now I would like to compare ...
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134 views

seasonality and generalized additive model

I am reading a report which talks about seasonality. There is a chart showing the average returns for each month of the year. In the chart it appears the last 3 months of the year tend to be negative. ...
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74 views

robust regions in grid search

I have a strategy f that takes parameters x,y (for x,y taking values in integer ranges). I get two grids (of returns and volatility values) from computing f(xi,yi) for integer ranges x1 <= xi <= ...
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290 views

trading strategy outperforms passive strategy in absolute terms, but in returns vice versa. how could this be?

Background: I want to compare two trading strategies in term of profitability. The red one is an active trading strategy, which involves many entry and exit to a specific market. The blue one is a ...
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372 views

Fluid dynamics for order book depth modelling

Would someone be able to give me an idea what type of fluid dynamics I could look at for modelling the order book? My background is more signals-related maths (correlation, covariance, fourier etc). ...
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49 views

How to properly hedge a short vol taking into account hedge stop loss?

Suppose a short straddle. In practice, hedging with long/short futures exposes to the risk of hitting a stop loss when market movements are wide. Eventually, it may very well happen that the hedge ...
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160 views

How to improve fitness and turnover in websim?

Well, I am new to quantitative finance.After reading a few things I started developing alphas on the websim platform by worldquant.Almost all the alphas I made had a decent sharpe(>2), but they ...
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27 views

RUGARCH (output) and Residual Resampling using GARCH(1,1)

I try to replicate the methodology proposed by Freedman and Peters (1984a, 1984b) which was applied in the famous paper by Brock, Lakonishok and LeBaron (1992) to generate many artificial log return ...
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88 views

Pairs trading strategy: Portfolio returns and NAV

Currently trying a pairs trading approach using cointegration. Tried both formations: $$log(P_t^A)=log(P_t^B) \hat{\gamma}+\hat{\mu}+\epsilon_t \hspace{0.5cm} (1)$$ $$P_t^A=P_t^B \hat{\gamma}+\hat{\...
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51 views

Correlation between a sector and MSCI ACWI returns

I have daily return data of 11 sectors of MSCI World Index and the MSCI ACWI index. I want to know the stationarity of correlations between the sectors and MSCI ACWI index. This is what I have done: ...
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43 views

How to make use of sector index returns data to analyze the overall stock market index

I have a set of indices returns data, namely, ...
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63 views

Probability of outlier events for laplace distribution

I've read that the laplace distribution is better for forecasting purposes than the normal distribution due to it better accounting for fat tails. However, when I run the numbers in matlab, laplace ...
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39 views

How are Risk indices linked to Physical Trading returns?

Ref to my previous question here: Physical trading spot transaction analysis-Quantified I have been able to narrow down my aim to defining a physical trading strategy P&L. My question is, how ...
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37 views

Trading rules: Controlling the portfolio FDR+ level

I'm trying to apply the FDR+ (False Discovery Rate +) methodology from Bajgrowicz (2011) link another_link. I have computed the p-values with the stationary bootstrap as they did, however I am not ...
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70 views

Physical trading spot transaction analysis-Quantified

ref to my previous question here: Physical commodity trading quantitative risk return model I am currently new to commodities and physical trading. I have currently narrowed down my area of analysis ...
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0answers
26 views

Dynamic counterpart for model tunneling/optimization using past data

When we tune a model to optimize parameters for a strategy using past data, even if controlling for overfitting (checking out of sample performance) and refreshing the analysis from time to time, we ...
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150 views

How to mathematically compute the volatility range of each stock?

I joined a stock market group and in this stock group, there is a proprietary "daily trading range (or DTR)" that the founder uses. However in order to do this for all the hundreds of stocks in the ...
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55 views

Equivalent of Force Indicator Within Ta-lib

Is there any equivalent of the Force indicator (http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators:force_index) within the talib library? (...
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53 views

Name of an indicator based on price change and volume

If a(t) is the price of an asset and v(t) is the transaction volume of that asset against say USD, one can look at the integral over a time period of v(t) a'(t). In words, this is the cumulative ...
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100 views

Investment Bank VWAP Execution ranking

Is there a ranking of Investment Banks institutional VWAP execution algorithms anywhere (who beats the benchmark price most consistently and by how much)? Thanks
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50 views

Flow Variable and Stock Variable

I am new to stochastic control and I need your help! Suppose that we are a trader and we are trading based two sources of signal. One comes from the stock's flow of dividends as well as another trader'...
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216 views

Quantitative Strategy on Variance Swap (master thesis)

I am doing a master thesis on Variance Swap and my dear friend told me I could find some valuable help on the "Quantitative Finance Stack Exchange". I would like to apologise beforehand, if my ...
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118 views

Self financing strategy : how to understand it in continuous + transaction cost model?

I'm having a hard time trying to understand a formula about self financing strategy trading. Let's suppose you have two assets, $\phi=(\phi_0,\phi_1)$ is the vector that represents the quantity you ...
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151 views

How to calculate implied borrow rates from option chain information?

I am given information about a ticker with following options data: stock price, date, expiration date, strike price, call / put indicator, style (American or European), ask price, bid price, mean ...
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60 views

Account for empirical relationship between signal and market data

I have two monthly time series : one is a 'signal', on which I will base my decision to buy or short-sell, and the second one is the time serie of a given asset's price. I have implemented this ...